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Home > Prudential Regulation Authority > Supervisory approach
 

Supervisory approach

Supervisory approach documents | Assessing risk  |  Information for smaller firms  |  Mitigating risk  |  Proactive intervention framework  |  Regulation of insurance

The Prudential Regulation Authority (PRA) is responsible for the prudential regulation of banks, building societies, credit unions, insurers and major investment firms. It aims through its supervision to develop a rounded, robust and comprehensive view of these firms, to judge whether they are being run in a safe and sound manner, and whether insurers are protecting policyholders appropriately.

Consistent with its focus on key risks to its statutory objectives, the PRA divides the firms it supervises into five categories of “potential impact”, and the frequency and intensity of supervision applied to firms varies in line with this. The scale of a firm’s potential impact depends on its size, complexity and interconnectedness with the rest of the financial system. For insurers, it also takes into account the size (including number of policyholders) and type of business undertaken.

The PRA also varies the resource it applies to firms based on their proximity to failure and resolvability, given the possible adverse effects of disorderly firm failure on its objectives. The PRA does not operate a zero-failure regime, but seeks to ensure that any firms that do fail do so in a way that avoids significant disruption to the supply of critical financial services. Judgements about a firm’s proximity to failure are captured within the PRA’s Proactive Intervention Framework, which is designed to ensure that the PRA identifies and responds to emerging risks at an early stage.

Under this approach, firms that are unlikely to have a significant impact on the PRA’s objectives on an individual basis, but which still have the potential to cause significant disruption collectively (for example, small credit unions or insurers), are supervised on a portfolio basis and examined individually only occasionally – for example where a risk has crystallised. By contrast, large, complex firms are subject to detailed supervision at an individual-firm level and will have a named supervisory contact.

Firm feedback survey

The Prudential Regulation Authority (PRA) proactively seeks input from firms on the effectiveness and quality of its supervisory framework and approach.

We obtain feedback from firms through several means. The annual firm feedback survey is an important part of this.

The survey gives PRA-authorised firms the opportunity to comment on their experience of being supervised. The survey seeks views from a range of firms on a number of topics, including:

  • how well the PRA understands a firm's business
  • how well the firm understands the PRA's regulatory objectives
  • the level of challenge from the PRA to the firm
  • the firm's relationship with the PRA.

We ask some standard questions but there is a chance for firms to make additional comments if they wish. The results of the 2016 firm feedback survey are available in key resources below.

Which firms does the feedback survey cover?

When we started the survey in 2013 it was limited to the largest firms. We seek feedback from these firms each year.

We also regulate approximately 1,000 small and medium-sized firms. In 2016, on a trial basis, we extended the survey to include 90 of these firms. Following the success of that trial, we have decided to include a larger sample of about 200 small and medium-sized firms every year.

How are the survey results used?

The survey is run by an independent team. We analyse the responses so that we can identify trends over time. The information is also used to modify the way we supervise. We will generally pass feedback to our supervisory teams, but will be mindful of any confidentiality issues.

What has changed as a result of the surveys?

As we highlighted in our recent Annual Report, we have made some changes following  feedback from the survey:

  • We have improved processes to reduce the number of information requests that we make and to ensure that the information we do request is actually needed. We have also coordinated some requests to avoid duplication.
  • We have also taken on board feedback about changes in supervisory teams to improve the handover process. While many firms understand that we need to redeploy staff periodically, as a result of this feedback we have increased our focus on ensuring new teams are better informed when they take responsibility for firms. This makes the PRA more effective and reduces the burdens on the senior management of firms.

Your feedback will also help us to know if we need to explain better why we are doing things.

When is the survey launched?

The PRA sends the survey to the largest firms in four groups; each group will receive the survey at a different time during the year.

On 4 September 2017, the PRA launched the survey to the small and medium-sized firms that have been invited to complete it this year.

We will publish aggregated results from this year’s survey in 2017 Q4.

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